The financial missteps that young physicians make at the beginning of their careers are usually low-cost to fix. However, occasionally, they can lead to major financial setbacks that take years to repair.
As you learn how to manage your money and make better financial choices that ultimately can set you up for success in the future, here are a few financial mistakes to avoid:
In many cases, student loan debt and attending medical school go together. It is not unusual for someone to come out of medical school with student loan debt totaling over $200,000. With this amount of debt, it is easy to be overwhelmed with what type of loans you have and the best way to pay off the loans. .
We all know the debt will not go away miraculously, but there is very little education in medical school or in training on how best to manage it. Therefore, finding the right payment plan and developing a strategy to repay your loans for your specific situation is essential.
Although, most residents and fellows are familiar with the term disability income insurance and how important it is to protect your biggest asset – your ability to earn an income. It is not always a top concern as you start your new role. Because of the cost, it can be tempting to delay until you are earning more money or until you have paid down some outstanding debt. Nevertheless, waiting to purchase individual disability insurance coverage can be a mistake for young physicians.
In many cases, doctors in residency have the opportunity to qualify for a discount on disability insurance. Meaning you may be able to save on insurance premiums for the rest of your career. If you have missed the window to purchase disability insurance coverage while in training, you can still find lower premium rates by buying a policy earlier in your career. In addition, it is common for policyholders who are younger and healthier to be insured at lower costs.
Another reason to move forward with purchasing disability insurance early in your career is physicians are ofttimes eligible for lower insurance premium rates prior to selecting a sub-specialty. The cost of disability insurance coverage is influenced by many factors, including a doctor's specialty. In addition, the physical threats of the role help determine how insurance companies group specialties. For instance, a physician in residency considering internal medicine may likely purchase a disability insurance policy at a lower rate than they would after deciding on a sub-specialty that falls in a more expensive class to insure.
It is important to remember that doctors at any stage in their career without disability insurance coverage risk their most significant asset if they are injured or become too sick to work. In order to begin protecting their assets, younger physicians can take advantage of the opportunity to purchase individual disability insurance coverage at a potentially lower rate.
Physicians should avoid lifestyle inflation after they have completed their training. It can be easy for doctors to fall victim to it, given their resources, if they do not make intelligent decisions with their money.
Lifestyle inflation, also known as lifestyle creep, happens when an individual's standard of living improves as the amount of discretionary income grows. With lifestyle creep, high-end goods and discretionary spending start to be perceived as a necessity versus a want or choice.
Prime examples of lifestyle creep include buying a larger home, a fancier car, or trying to keep up with what others think you should be spending your money on without contemplating how you should use or save your newfound wealth. It is easy to get caught up in the thinking, "A doctor should have a nice… [fill in the blank]." In reality, physicians should not let anyone else influence how they decide how to spend or save their resources or live their life.
One of the best ways to fight lifestyle inflation is by creating and sticking to a financial plan which includes a budget and discerning wants from needs. Even though your salary may have increased since residency, your goal should be to find a balance for your spending, investing, and saving.
Many residents may not be aware that they can or are a little intimidated to negotiate their contract of employment. After being a learner and student for such a long time, it can be challenging to transition into a new role. However, residents and fellows should not feel embarrassed or intimated about asking questions of future employers.
Contract negotiations are a normal aspect of the hiring process. However, it is not uncommon for a new physician to agree to a standard employment contract without any thought put into what you want, professional review, negotiation, or changes. Not considering what is essential or properly reviewing the contract can lead to the loss of compensation, unsatisfactory working conditions, and a missed opportunity to find what you are looking for in a new role.
Before any discussion with a potential employer begin, make sure you devote time to consider what is important to you. These may include the right work-life balance, the most money possible, career advancement, and additional training. As with most things, not everything can be negotiated, but it doesn't hurt to ask nicely. Once you identify what your deal breakers are, then you will want to do some homework. You will be a more effective negotiator if you know as much as possible about your potential employer and the role. The more you know, the better and more informed questions you will be able to ask. Also, don't just ask questions related to compensation. Culture is another important factor to consider.
These three things are typically negotiable – compensation, schedule, and contract duration. It may be a mistake to think that all these items are up for discussion, especially for a larger organization. Remember, negotiating your employment contract may be out of your comfort area, but it can be worth the effort.
Young doctors, like many others, tend to focus on paying off their debt, including student loans, before thinking about paying themselves by saving for retirement. It can be a challenge for physicians to handle the responsibility of bills and student loans repayments as well as developing future financial goals, like buying a home and having children. So, it is not surprising that, when weighing all of these priorities, saving for retirement is put to the side until later.
Because of the lengthy education and training programs for physicians, there is typically a delay in earning a full income compared to the general population. This professional timeline also has an adverse effect on the ability to save for retirement. If you put off saving for retirement even longer in favor of one of your other financial priorities, you can fall further behind in building their retirement nest egg.
It can seem daunting at first, but physicians need to follow a financial strategy that includes saving for retirement once you begin your first attending position. This allows for your retirement investments to have as much time as possible to accrue value and grow. A financial planner can help create a strategy that targets paying down your student loans as well as saving for your eventual retirement.
The transition between residency and fellowship to being a fully practicing doctor is a critical time in a physician's financial life. Without much experience in financial strategy, it is normal to feel overwhelmed and not sure of what to do. When you work with a financial planner, you have someone to help you create a personalized financial plan to meet your specific situation.
When it is true that doctors earn a relatively comfortable living, a physician's professional path also comes with its own unique set of financial challenges and setbacks. No matter what stage of your career you are in now or how well you have navigated to this point, it's never too late to improve your future. Contact our team of financial advisors at Spaugh Dameron Tenny, and we can guide you through organizing and planning your personal finances.
Shane Tenny is the managing partner of Spaugh Dameron Tenny. Along with hosting the Prosperous Doc® podcast, Shane has a true passion for behavioral finance, helping clients and audiences understand how to develop successful strategies based on their unique temperaments. An accomplished and highly engaging speaker, Shane is regularly interviewed for television and podcasts, is actively involved in the Financial Planning Association®, and contributes to industry advisory boards.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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